Here are the areas of the stock market that'll get the biggest boost from Trump tax reform

Equity strategists across Wall Street have been
reluctant to price tax reform expectations into their
already-bullish forecasts.

A successful GOP bill could lead to even more
optimistic estimates, especially in areas like small caps,
banks and tech.

With the GOP tax bill inches away from
passage, many experts are expecting a fresh wave of strength in
equities.

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Sure, strategists across Wall Street are already bullish on the
prospect of more stock gains through the end of 2018. But many of
them have been reluctant to push the pedal to the metal, tempering forecasts until tax
reform was done and dusted.

Small-cap companies

This group of stocks with smaller market values is much more
domestically focused than broader indexes, and are thereby
expected to see an outsized benefit from measures intended to
boost US businesses. As such, the S&P 600 index of small
caps has already outperformed as investors anticipate a possible
windfall of gains.

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A report from Jefferies on Wednesday
reflected this dynamic, with the most highly-taxed companies in
the S&P 600 outpacing their larger counterparts over a long
period of time. This can be seen in the chart below:

caption

The most highly taxed small-cap companies have outperformed amid expectations of tax reform.

source

Jefferies

Banks

The banking sector has long been one of the areas singled out as
having huge upside potential in the event of a successful GOP
bill. The reason is simple: banks pay a high effective tax rate,
so a cut would be a huge help to their bottom lines. Not to
mention that optimism around US growth is also something that
trickles down to banks, which serve as major lenders.

Speaking of which, banks are poised to realize a double whammy of
bullishness, with the Federal Reserve already having raised
interest rates in December. That's widely expected to translate
to more interest income. Given these two drivers, it's hard to
not be bullish on the group.

Technology companies

The repatriation tax holiday in the GOP's plan is expected to be
the big driver of gains here. Many of the most heavily weighted
companies in the tech sector are multinational corporations that
get a large portion of earnings overseas. The ability to bring
those profits back at a more appealing rate is expected boost the
stock prices of these companies, while also stimulating the US
economy.

It must be noted, however, that tech has seen some weak patches
in recent weeks as investors have questioned just how much of a
boost the group will get from the corporate tax cut. According to
a recent study from S&P Global, tech has the third-lowest tax
rate out of any industry.

Still, many experts foresee gains from repatriation activities
outweighing what could be a muted reaction to a lower effective
tax rate.

The most highly-taxed companies

This is an all-encompassing category that includes stocks from
all sectors, and it's the most obvious takeaway from the GOP tax
plan. The companies paying the most in taxes have the most to
gain from a cut. Simple as that.

Investors have been pricing this in for some time, as indicated
by the chart below. But if Wall Street strategists are to be
believed it has further to run.

caption

The S&P 500's most highly taxed companies have outperformed their low-tax peers.